Discount marketplace Jet.com is dropping its annual $50 membership fee. The amendment to the service changes Jet's positioning in the e-commerce world. Now, the company has a leg up in the competition against Amazon (NASDAQ:AMZN), which charges $99 for its annual Prime membership fee.
The removal of a membership fee sounds appealing to shoppers, but the change will ultimately impact Jet's business model and perhaps its profitability, TechCrunch reported. Prices of items on the marketplace will have to be slightly higher.
Jet.com launched on July 21 and was founded by CEO Mark Lore, previous owner of Quidsi Brands, which included Diapers.com and other e-commerce sites. He sold his company to Amazon for $545 million in 2010.
Lore previously said that Jet's unique model would reach $20 billion in products per year by 2020, thanks to the memberships of 15 million customers. However, by dropping the membership fee, that goal may have to change.
That leaves undercutting Amazon and other e-commerce sites on price in order to win over consumers and eventually reach profitability.
"It will really be the same time frame [to profitability]. We've just shifted the dynamic a little," Jet's Chief Customer Officer, Liza Landsman, told TechCrunch. "So $20 billion by 2020—in a world with membership fees, we were taking the commission paid to us from retail partners on the marketplace and passing all of them back to our members in the form of initial discounts."
So prices on the shopping end are now slightly higher, and Jet is taking a larger portion of commission on those products.
Jet uses "Smart Cart" savings, discounts passed on to consumers who fill their carts with more items that can be shipped together in one large order. But with the new changes, average savings per order—originally between 8 and 15 percent per order—will drop slightly to 4-5 percent and 8-10 percent.
-See this TechCrunch article
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